SYDNEY, Oct 2 (Reuters) - Home prices across Australia's major cities rose only marginally for a second month in September, with a rare dip in Sydney offering more evidence that tighter lending rules were working to head off a debt-driven bubble in the sector.
Property consultant CoreLogic said its index of home prices for the combined capital cities rose just 0.3 percent in September, from August when they edged up 0.1 percent.
Annual growth in prices slowed to 8.5 percent in September, from 9.7 percent the month before and 10.5 percent in July.
"This slowing in the combined capitals growth trend is heavily influenced by conditions across the Sydney market where capital gains have stalled," said CoreLogic head of research Tim Lawless.
Prices in Sydney eased 0.1 percent in September, the first decline in 17 months, dragging the annual pace back to 10.5 percent from 13 percent in August.
A slowdown is much desired by the country's main bank watchdog which has tightened standards on investment and interest-only loans, leading banks to raise rates on some mortgage products.
The Reserve Bank of Australia (RBA) has also been concerned that debt-fuelled speculation in property could ultimately hurt both consumers and banks.
Melbourne fared much better, however, with prices rising 0.9 percent for September and 12.1 percent on the year.
"The stronger housing market conditions in Melbourne are supported by auction clearance rates which have consistently remained above 70 percent," said Lawless.
"Additionally, advertised stock levels remain remarkably low and private treaty sales continue to sell rapidly, averaging 30 days on market."
Conditions varied widely across other cities, with Hobart rising 14 percent on the year while prices in Perth fell 2.9 percent.
Outside the cities, prices edged up 0.1 percent in September to be 5.6 percent higher for the year.
The RBA holds its October policy meeting on Tuesday and is considered certain to keep rates steady again, in part because any further easing might only encourage more borrowing by already heavily indebted households.
The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers and become a political hot potato.
The conservative government of Malcolm Turnbull has blamed a lack of supply for the problem, while the opposition Labor Party has pointed the finger at favourable tax treatment for property investment.